GOP “Doomsday” Plan: Surrender

ABC News reports that the House Republicans have a doomsday plan in mind should the fiscal cliff talks fail to reach an agreement: Total surrender!

The concept is for the House to give President Obama the middle class tax cut extension he is seeking without any extension of the upper income tax cuts and to give him “nothing else”. That is to say, according to ABC, “no extension of the debt ceiling, nothing on unemployment, nothing on closing loopholes. Congress would recess for the holidays and the president would face a big battle early in the year over the debt ceiling.”

The network reports, “Two senior Republican elected officials say this doomsday plan ‘is becoming the most likely scenario.'” In a variant of the Mel Brooks comedy “Blazing Saddles,” were the sheriff puts a gun to his own head and warns that if anyone moves, he’ll “shoot the sheriff,” the Republicans are, in effect, saying that if Obama doesn’t give in, he’ll get his way. Brilliant strategy. It’s for great thinking like that that we elected a Republican House to serve as a check on the president.

The Republican Party appears willing to surrender its only leverage in return for nothing — zip, zero, nada, zilch — in the way of spending cuts. Some may say that the debt limit would give Republicans leverage, but we have been down that game of chicken before and we know that John Boehner won’t pull the trigger.

But polls show that people want spending cuts more than any tax relief and that they are quite prepared to watch spending drop if the savings are used to cut the deficit. And economists all warn that failure to cut the deficit — and extending the tax cuts without spending cuts will add to it — could send us into another recession.

Obama’s post-election arrogant intransigence is a gauntlet the House must pick up. The GOP leadership needs to demand that spending cuts be put on the table in a fixed ratio to tax increases. Boehner needs to say to Obama: “for each three dollars of spending cuts you propose, I will propose a dollar of tax increases — if the cuts are real.”

Instead, Obama and the Republicans are playing an elaborate game of Alphonse and Gaston, each asking the other to go first in putting a plan on the table. Boehner needs to change the debate so that they put their plans on the table simultaneously according to a fixed ratio of spending cuts to tax increase. Agree on the ratio and then let each side propose its half — let the Republicans propose their revenue increases and let Obama propose his spending cuts.

Obama will want to cut defense and nondefense discretionary spending rather than poverty and means-tested entitlements. Republicans will want the opposite. Republicans will suggest revenue increases that cap deductions and eliminate special tax breaks while Obama will want a straight rate increase on the top end of the scale. But that’s what bargaining is for. That’s what should follow the first two steps:

1. Agree on a cuts: taxes ratio

2. Ask the Democrats to propose cuts and the Republicans to suggest taxes for their parts of the ratio.

Once those two basic steps are in place, a realistic compromise is possible.

Obama should be willing to follow the Republican lead in cutting deductions, loopholes and tax incentives (called tax expenditures in budgetese) while the GOP should embrace the spending cuts the president proposes. The exception would be if Obama’s cuts are deep in the defense sector, the Republicans should hold out for non-defense cuts. Most likely the Republicans will not get Obama to cut entitlements, but they should accept this compromise in return for no increase in rates. A cut in deductions will raise revenues. A rise in tax rates will be a dramatic disincentive to earning and investing.

There’s a difference between good bargaining and surrender, and Republicans in the House need to learn the difference.